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Unit-19: Behavioural and Managerial Theories of the Firm

2. The result shows that the sales maximization production will be higher than profit maximization Notes
production of firm.
3. On the given minimum profit constraint, the sales maximization firms will expend more revenue
on advertisement than profit maximization firms.
4. There can be protest between the price determination in long run and short run. If the production
cannot increase in short run, can be increased by increasing the price of inputs. But in long run, it is
better for sales maximization firm to lower their price to get competitive for a big region of market
and get more revenue.

Give your views about Baumol’s Sales Maximization Model.

Its Criticism

There are some criticisms in Baumol’s Sales Maximization Model.
1. Rosenberg has criticized Baumol for profit constraint for sales maximum. Rosenberg has proved
that it is not a easy task to show a firm’s profit constraint. It has been shown by some figures of
Rosenberg in Fig. 19.9. Sales revenue and profit of the firm have taken on the vertical axis and
parallel axis respectively. R is profit constraint. Below this, there can be select any one combination.
For example, the profit level P on B will give more preference than P on A. Again, in a single profit
1
line P , on combination B and C, C will give more preference than B because there are more sales
1
on C. Thus, on constraint line R, at point D and E, E will be given more preference than D which is
more sales level. So, in Baumol’s model, selecting the profit combination of profit maximization is
very tough. The advertisement cost will implement till profit get constraint.

Fig. 19.9

Sales Revenue A C E
D

B

O P P R
1
Profit

2. According to Shepherd, an oligopoly firm needs to face kinked demand curve. If the kinked is very
big then total revenue and profit will be maximum on a level only. So, the sales maximization and
profit maximization firm will not produce the various level of production. But Hawkins has indicated
that if there is any non-price competition like goods packing, free service, advertisement etc. occurs

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